Saturday, February 19, 2011

Why You Need to Own America's Last Honest Currency, Now

I have been writing about the great investment opportunity in nickels for some time. Nickels are an inflation hedge. Nickels are a deflation hedge. And you can buy them at a discount to their metal value. What's not to like?

Gary Gibson does a great job of explaining the dynamics of the nickel:
Every single circulating nickel still has 3.75 grams worth of copper each…along with 1.25 grams of nickel. Copper is currently about $4.46/lb. Nickel is currently about $12.97/lb. So if you do the math, each nickel is worth about 7.3 cents.

120 nickels pieces is worth $6.00 at face value. Those 120 coins contain about a pound of copper and 1/3 pound of nickel. That’s about $8.76.
You can’t cash in on this arbitrage directly (anti-smelting laws for pennies and nickels were introduced in late 2006). But the bullion market for cupronickel coins will develop, just as it did for silver US coins. This will happen once the government starts minting five-cent pieces made out of cheaper metals.

To those who doubt this will happen, I refer you to the bags of silver coins trading as bullion for over 20 times their face value. You can easily order such a bag right now by going to any of a number of online bullion dealers. These bags of coins sell right alongside silver bars and rounds.

Right now, the government is subsidizing your copper and nickel purchases…and cutting out the middleman. As much as we complain about government, we ought to stop and offer them a little thanks for this one.

What’s even more interesting is that hoarding nickels provides an imbedded hedge against deflation. That’s because a nickel will always be worth a nickel, at least. So if the dollar strengthens and copper, silver, and gold all get cheaper in dollar terms, you can still spend your nickels just like any other money. Your purchasing power stays the same, maybe even increases.

But if the dollar declines, then the value of the cupronickel in the currency will rise against the face value. Eventually – at two or three times face value – these five-cent pieces will trade as bullion just as 90% silver quarters and dimes did and still do.

Again, there is currently no transaction cost to saving in nickels and no risk from plummeting metal prices. There is literally nothing (in case of deflation) to lose and everything (in case of inflation) to gain.

Your only real problem is storage; a few thousand dollars of nickels takes up a lot of space…and it’s heavy. But people had the same problem with silver when it was cheap. I doubt they’re complaining now. [Silver coins trade at 20 times face value]

Having “too much” cupronickel won’t seem like much of a problem if inflation continues to drive the cupronickel in five-cent pieces far in excess of face value. The cupronickel is America’s last piece of honest currency.
Read Gibson's history of other U.S  metal coins, here.


  1. Excellent !
    I love nickel and copper penny talk.
    Don't stress out if you can't afford to buy a $100.00 box of nickels. Just buy 10 rolls a week. After a year you will have over a thousand dollars in nickels.

  2. I was at the bank a week ago getting small change that I use for allowances in my house. I asked for $100 in change split between quarters and nickels. Your talk and others about hoarding nickels has intrigued me. At first the Teller didn't hear my nickel request and brought all quarters, so I corrected her and asked for $20 in nickels. She gave me a look like, "Oh brother, you're not one of those people?" and proceeded to count out the rolls of both quarters and nickels. Thus, this nickel thing is catching on.

    One concern I have is whether we'll go through a government recall of their currency. So even if you've hedged inflation by hoarding nickels (or junk silver too) will the government outlaw the use of nickels or the ownership of government money? Sure, if everything goes brown and we're back to barter with a dissolved government then you're probably okay. But does getting "physical" really include government money since that can be taken away?


    1. A recall would only make it more valuable. Any sensible person "hoarding" money, precious metals, food, weapons or other supplies wouldn't hand over any of their stuff no matter how illegal it is to keep it. Fact: if the Government wants it, and if they're willing to go through the trouble to confiscate it, it's worth more than you know.